Online advertising is an important way for businesses to contact potential new customers. Advertising platforms can target advertisements to people who have requested information about a topic relevant to a product or service being advertised, which greatly increases the chances that the person who views an advertisement will be interested in the content and may ultimately become a customer of the advertiser.
To implement a system in which advertisers can have their advertisements displayed to people who are likely interested in the contents of the advertisement, advertising platforms may implement an auction system for advertising spaces. Each advertising space corresponds to a specific location for an advertisement on a web page that is rendered to a user in response to a specific request. In a sponsored search advertisement, that input is a search query that matches a certain phrase or certain keywords. Advertisers bid for ad spaces such that, when a web page is to be rendered, the advertising platform can select a winning bidder and insert an advertisement from the winning bidder into the web page before it is delivered to a computer user who has requested that web page.
Different advertising platforms implement auction rules differently, and the specific rules used for conducting an auction may be regarded as a trade secret of the advertising platform. However, the inventors believe that a very large percentage of ad spaces are auction using a variant of an auction format termed a Second Price Auction. Under these auction rules, the bidder offering the most value to the advertising platform is selected as the winner of the auction and has their advertisement displayed in the ad space. However, the winning bidder pays for the ad space an amount determined based on what others bid for the ad space.
In online advertising, frequently the advertiser does not pay for having their advertisement displayed unless a user “clicks” on the advertisement, indicating an interest in receiving more information from the advertiser. A “pay per click” system may impact the manner in which an advertising platform computes the value of each bid. An interesting advertisement for a desirable product is more likely to generate a “click” from a user and the advertising platform is more likely to be paid for that advertisement than for an advertisement that is uninteresting or for a less desired product. Accordingly, an advertising platform may attach a greater value to a bid for an interesting advertisement than to a less interesting advertisement, even if the advertiser presenting the less interesting advertisement has bid more for the ad space.
The advertising platform may represent this difference in value by a “quality factor” assigned to each advertisement. The quality factor may be derived, for example, from observations by the advertising platform of how frequently users click on an advertisement when it is displayed or on other factors, and may serve as a weighting factor for a bid made by an advertiser for a future ad space. In a “score-weighted auction,” the quality factor may be used in selecting the winning bidder and determining the price paid. The bidder with the highest bid times quality factor wins the auction. That bidder pays a price that depends on the bid of the second highest bidder weighted by a quality factor assigned to that bidder.
A variation of a score-weighted auction is a “generalized second price auction.” In a generalized second price auction, bidders are placed in order of their score-weighted bids, and the winning bidder pays the minimum price that causes that bidder to retain their position in the order.
In theory, each advertiser interested in an ad space selects a bid each time a user issues a request that will lead to rendering a web page that includes the ad space. However, in practice, the rate at which such web pages are rendered is too great to provide an advertiser a meaningful opportunity to compute a new bid. In practice, advertisers set bids and leave them in place for some period of time.
Determining what bid to make can become complex for an advertiser, because the winning bid and the cost of that winning bid depends both on what other bidders do and the quality factors assigned both to the bidding advertiser and to other bidders. To aid advertisers determine what to bid, some advertising platforms make tools accessible to advertisers. The tools may provide guidance to an advertiser as to the number of auctions an advertiser may win based on bids the advertiser may make and what the advertiser may expect to pay for the advertising space.